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MENAFN - Muscat Daily - 07/08/2012

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(MENAFN - Muscat Daily) After a disappointing July, the benchmark 30-share MSM index managed to post gains for the first time in a month and closed the week (July 29 -August 2) at 5,464.73, gaining 1.43 per cent week-on-week, with support from all sectoral indices and most leading stocks.

The Al Arabi Oman 20 index jumped 1.52 per cent to 974.83 on turnover of RO9.64mn. The Al Arabi GCC 50 index gained 1.89 per cent to close at 956.99, while the Al Arabi MENA200 index increased 1.87 per cent to close at 904.80.

We noticed investors reacting indifferently to recent rights issues and bonds with some investment funds not exercising their right to subscribe, which resulted in a chaotic situation in the market and led to more pressure on leading stocks.

Unfortunately, such investment decisions should be based on long-term, clear strategies of funds and portfolios, and not on market and investor sentiment.

Investment opportunities, like rights issues which are offered at discounted prices, present real opportunities.

The Muscat Securities Market was the worst performer among its GCC peers in July. However, the performance of the market does not reflect the actual performance of local companies, with indicators like profitability ratios among the best in the region, especially in the banking sector.

It is worth noting that price-to-earnings ratio and price-to-book ratio of Omani banks in the first-half of this year was 6.57 times and 1.03 times, respectively.

These price multiples are at historic lows and quite low compared to other GCC banks. This holds true for other sectors as well.

Accordingly, the main driver of investor decisions is the psychological factor that has impacted market performance.

We expected the market to be positively supported by corporate results either in terms of liquidity and/or higher rates of investment activity and/or portfolio restructuring, which unfortunately was not the case.

The last two trading sessions of the week witnessed the systematic entry of GCC, Arab and foreign investors in select and leading counters, with opportunities seized especially by institutions.

All sectoral indices ended in green territory with the Financial index gaining 3.78 per cent to 6,094.34 points supported mainly by Global Financial Investment, Oman National Investment Corporation Holding (ONIC), BankMuscat and Ahlibank.

It is worth mentioning that Ahlibank increased its capital to RO120.4mn, effective August 5, through its right issue.

The Industrial index gained 2.09 per cent on a weekly basis to close at 6,662.74. The index has risen 11.8 per cent this year. The index benefited from the rise of Raysut Cement, Oman Flour Mills and National Aluminum Products.

Oman Cement posted a 24.7 per cent quarter-on-quarter drop in net profit to RO3.87mn, following increase in cost of sales from imported clinker due to the temporary shutdown of the first production within the quarter.

Additionally, the drop in cement prices, losses on the available-for-sale investment portfolio and drop in dividend income all led to weaker bottom-line performance.

On a positive note, the company continues to post good sales, in terms of volume, which touched the highest quarterly level in three years at 577,000 tonnes in Q2'12, up 3.3 per cent q-o-q (27.2 per cent y-o-y) thus supporting our overall view on the demand for sector products.

On the other hand, despite margins remaining under pressure due to the increased cost of sales and the challenge of maintaining market share, we believe that the company's strong balance sheet and promising local demand, due to government spending, in addition to the key geographical location, turn the cement industry into a promising sector.

The Services index moved up 1.25 per cent on a weekly basis to 2,601.88 in spite of the absence of earnings reports from Renaissance Services and Oman Telecommunications Co (Omantel).

Nawras' Q2'12 results reveal that despite the increase in revenue " up 3.4 per cent q-o-q to RO48.4mn (with Q1'12 revenue includes a one-off accounting adjustment of RO658,000), the rise in expenses (both operating and general and administrative expenses), led EBITDA margin to drop to around 46 per cent in Q2'12 compared with 48.5 per cent in Q1'12.

The company's net profit dropped slightly, by 1.3 per cent q-o-q to RO9.67mn on a drop in financing costs.

Analysis of trading activity indicates that volumes and value gained 129.4 per cent and 84 per cent to 80mn shares and RO17mn, respectively.

Foreign and GCC institutions notably entered the market, in addition to Arab individuals, registering a combined net purchase of RO2.4mn, offsetting selling pressure from local individuals and institutions.

Bank Nizwa's constitutive general meeting (CGM) was held the previous week. The meeting approved the memorandum and articles of association of the bank in addition to other important decisions. Furthermore, Al Izz Islamic Bank (under formation) unveiled its corporate identity in preparation for its IPO.


We advise investors to build genuine positions and select companies that depend mainly on local operations and revenues as well as to avoid speculation on historically volatile and operationally irregular stocks.

We still see big value in the banking and service sectors, mainly telecom companies.


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